How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Megan C Your Own Question

Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 15587
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
23669918
Type Your Tax Question Here...
Megan C is online now
A new question is answered every 9 seconds

How do I treat gains on the sale of a house originally acquired

Resolved Question:

How do I treat gains on the sale of a house originally acquired in a 1031 exchange?
Submitted: 1 year ago.
Category: Tax
Expert:  Megan C replied 1 year ago.

Customer:

Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

Customer:

How are you today?

Customer:

The gain on the sale of a house acquired in a 1031 exchange is the same as any gain - your sales price less your basis.

Customer:

Your basis in the new property is the basis of the previous property plus boot received

Customer :

I guess I don't understand can you make it simpler?

Customer:

When you gave up old property for new property the tax book value of that property transfers to the new property

Customer:

So, if you had a house that originally cost $500,000 and you took $200,000 of depreciation, the basis in that house is $300,000. You then trade for another property, plus you pay $100,000 for the new property.

Customer:

Your basis in the new property is $300,000 plus $100,000

Customer :

The property I sold was in Alaska, The property I bought was in Az. Then I sold the Az.property . The property in ak was a rental, and the property I bought in az I rented seasonaly for 3 years. I then lived in it as my second home before selling it

Customer:

How long did you live in it?

Customer :

4 months a year for 3 rears

Customer:

So it won't qualify for the principal residence exclusion. You would need 24 months in 5 years for that.

Customer:

Your gain on the sale of the house in Arizona is whatever basis you had in the house in Alaska less any depreciation you took

Customer :

Don't want to use it as principle residence as I plan to sell my ak. home and use that exclusion this year. I consider myself an ak. resident and have been for 34 years

Customer:

That's fine.

Customer:

So your gain will be the difference between what you sell the property for, and its basis

Customer:

which your basis will be what you paid for the original property in alaska, less depreciation taken both on the alaska home and the home in arizona

Customer :

I did write this prop. off as a rental for the first 3 years. do I subtract that from the basis?

Customer:

Yes

Customer:

Then, the amount of the gain that is attributed to depreciation will be recaptured

Customer :

Explain again what I use as a basis for this house. I paid 135K and sold it for 189k

Customer:

Then you would take $135,000 minus depreciation you took.

Customer:

Then take that result, and subtract it from $189,000

Customer :

What about the first statement you made about the basis I had in the Ak prop. plus any "boot???"

Customer:

Boot would be if you exchanged property and then paid additional money for the replacement property

Customer:

so if you traded your alaska home and paid $100,000 for the house in Arizona then you would add $100,000 to the basis

Customer:

That's called 'boot' in the tax world - don't ask me why

Customer :

So essentially I didn't exchange property, I sold one and bought another and went thru the 1031 exchange dprocess to defer any gains at the time of the orig. ak sale

Customer:

yes, and you would recognize those gains now

Customer:

at the sale of the replacement property

Customer :

The gains of the az fproperty right? not the gains on the ak. property as well?

Customer:

when you do a 1031 exchange you don't recognize the gain at the time of the exchange

Customer:

then, when you sell the replacement property you recognize the gain

Customer :

The az. gain or both gains?

Customer:

Both

Customer :

I thought if I lived in it for 2 years the ak. gain would be forgotten

Customer:

You said you only lived in it for 4 months out of the year

Customer :

correct but it was my secondary residence

Customer:

You have to live in the house for 24 months

Customer:

You only lived in it for 12 months

Customer :

Even if it is a secondary residence or does it have to be my primary residence

Customer:

has to be primary residence, and you have to live in it for 2 full years. That's 24 months

Customer:

if you lived in it 24 months during a 5 year period then you can exclude the gain

Customer :

sO EVEN IF I HAD FULFILLED THE 24 MONTHS BUT IT WAS A SECONDARY HOME, i'D BE SADDLED WTH ALL OF THE CAPITAL GAINS

Customer:

correct

Customer :

I guess that wasn't the answer I hoped for. The ak prop. was a rental too so I have to deduct the depreciation from the basis as well?

Customer:

Yes.

Customer :

Why did I even go through the 1031 exchange process?

Customer:

To defer your gain until the sale of your replacement property

Customer:

You didn't have to pay tax on the gain when you sold the original property

Customer:

So theoretically you could defer gains indefinitely if you kept exchanging property

Customer :

But I have to pay it now along with the gain on the AZ. property too right?

Customer:

yes, because your basis in the old property transferred to the new property

Customer :

it's over my head. I guess i'll have to take your word for it

Customer:

I would suggest having a tax professional handle your tax return

Customer :

Thanks

Customer:

Because this can be hairy

Customer :

Okay

Customer:

If you're satisfied with the answer, please feel free to rate my service as "excellent" to ensure I get credit for assisting you.

Customer:

Thank you for your positive rating ... please come back and see us any time you have a question. Have a great night!

Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 15587
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Megan C and 9 other Tax Specialists are ready to help you
Expert:  Megan C replied 1 year ago.
Thank you Dan for the positive rating. Please come back and see me next time you have a question. It was a pleasure working with you today. I hope you have a great day.

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
 
 
 
Chat Now With A Tax Professional
Megan C
Megan C
Tax Professional
15587 Satisfied Customers
Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level